Poor returns, climate pressure force oil majors to rethink African assets

Days after British Petroleum (BP) and Italy’s Eni started talks over the future of their oil and gas assets in Algeria, ExxonMobil is in talks with African-focused Savannah Energy to sell off its upstream and midstream operations.

A few weeks ago, Anglo-Dutch oil major, Shell, acknowledged that its spill-prone operations in Nigeria are not compatible with plans to go green, indicating that this could hasten its departure from the troubled region.

Across the African continent, multinational oil companies are exiting their operations to refocus their business to tackle falling margins, rising debt and climate pressures.

On average, oil companies saw a 35 percent decline in their results last year, and analysts say the future appears cloudy over energy transition concerns. Total has already renamed the company TotalEnergies to reflect this shift.

Last year, Norwegian consultancy Rystad Energy said in a note that eight of the world’s top oil companies, ExxonMobil Chevron, Royal Dutch Shell, BP, Total, Equinor, Eni, and ConocoPhillips are expected to sell assets with resources of around 68 billion barrels of oil and natural gas equivalent.

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Those assets were last year said to carry an estimated value of $111 billion.

Europe’s key energy companies are fast cutting back their oil and gas portfolios to keep only the assets most likely to be profitable and redeploy capital for a transition to clean energy, as uncertainty mounts over future demand for fossil fuel.

“Currently, the risks of investing in some new oil and gas developments far outweigh whatever anticipated returns on a risk-return matrix,” Uchenna Obi, UK-based clean energy expert, noted.

And nowhere is this risk more pronounced than in Africa. Apart from the existential threat from climate change and rebellious shareholder, fighting for a bigger voice on their boards, easily run into murky waters through constricting fines or harsh court fines.

Shell has been fighting fires in the Niger Delta region, where insurgents target its infrastructure and has received heavy court fines.

Exxon was ordered to pay a $74 billion fine in Chad in 2016 for underpaid royalties in the Central African nation. The company settled with Chad and avoided the fine, and it retained its exploration licence in the country through to 2050.

Exxon’s assets in the region include the Chad-Cameroon Petroleum Development and Pipeline Project, which involves the construction of a 1070km pipeline to transport crude oil from three fields in southwestern Chad to a floating facility 11km off the Cameroon coast.

“The proposed acquisition would include a 40 percent operated interest in the Doba Oil Project, and an effective 40 percent interest in the Chad-Cameroon oil transportation pipeline,” said Savannah Energy in a release.

The Doba Oil project in 2020 produced an average gross 33.7 percent Kbopd and the Chad-Cameroon pipeline transported a gross 129.2 thousand barrels per day (Kbopd).

Finished in 2003, the project was an initiative between International Finance Corp. and the World Bank to show that a sustainable model is possible.

Exxon is the operator of the Chad-Cameroon pipeline. In addition to Petronas, the Chad government is also a partner with a 24 percent stake.

“The deal will give Savannah Energy a significant footprint on the energy landscape in the continent,” an official from the company, said.

In Nigeria, Savannah owns and operates a large-scale integrated gas production and distribution business that provides gas, contributing to over 10 percent of Nigeria’s daily national average power generation and is significant cash flow generative.

In Niger, it has license interests covering approximately 50 percent of the country’s main petroleum basin, the Agadem Rift Basin, in the southeast of the country.

“To date, the company has made five exploration discoveries from five attempts in Niger. For Nigeria and Niger, we have 2P and 2C reserves and resources of 157 MMBoe with a life of 31 years,” Savannah Energy notes on its website.

Last year was Savannah Energy’s first full year of ownership since the completion of the acquisition of its Nigerian assets.

“Against a challenging backdrop, we recorded a robust financial and operating performance. We beat all of our original financial guidance metrics,” said Andrew Knott, CEO of Savannah Energy, underscoring why the company is happy to proceed with the deal.

Last year, Exxon and Petronas began working with advisers on a proposed sale of their stakes in the Chad project, which includes oil fields in Southern Chad and a major pipeline transporting oil to a marine terminal for exportation in Cameroon.

Malaysia’s state-owned oil giant Petronas was also searching for a buyer to dispose of its 35 percent stake in the Chad project, with Exxon working with another adviser to sell their 40 percent stake as well.

In the face of energy transition fuelling shareholder rebellion and uncertainty in African countries, oil majors are running for the hills.